by scott.gillum | Jul 17, 2012 | 2008, Sales
Given our average deal size we used to think we needed to have a scaled down offer to get a foot in the door. Once in, we could then grow the account. We were wrong.
Considering the current economic situation, I know that many companies may be tempted to come up with a “door opener.” A subscale and/or entry level product/service intended to get a foot in the door with a new client and/or a new business division.
You’re also probably thinking about going down market into smaller accounts. Although this shift may help satisfy short term revenue needs it will do little to nothing in helping grow your business. Most likely those accounts will not expand and/or even be retained next year.
Here’s how I know. Looking back at the new accounts acquired over the last four years we found some interesting trends and confirmed some things that we knew intuitively (click on the image). When we measured the value of customers in their first year against the average time spent engaged with the client a few key insights emerged.
First, three “clusters” of accounts emerged;
- Customer that grew to beyond $800K in their first year
- Customer who had first year revenues between $350-$600K
- Customers who represented under $250K in total billings from the year.
Let’s start with the bottom and work our way up. Customers in cluster 3 had an average value of $150K. Accounts on the lowest end of the spectrum in the “One and Done” zone” (under $10K for example) were “workshop”…our “foot in the door” offer. Guess what, of the 8 that fit that description zero, zippy, nada, grew beyond the initial workshop. The other bad news…only 2 accounts led to follow on work and no company in that grouping was retained the following year.
I was speaking with Larry Emond, CMO of the Gallup Organization the other day and he mentioned that they saw a similar trend; “We found that only 4% of customers who were acquired under a certain price point grew to be substantial customers.”On the other end of the spectrum are the occasional customers who are big right out of the gate. The “Rare Birds” zone in cluster 1 includes those few customers who start big and for the most part remain large customers YOY. The key to success with this cluster is that they had/have a tendency to have a need for multiple service lines and/or desire a complex solution. This group was looking for a strategic partner versus a vendor for an immediate need. Year over year retention was also good at over 50% and if they used multiple services lines it was almost a sure thing they be retained….and grow.
As Larry also mentioned; “Our big customers today came in as big customers…”. We’ve had the same experience and have grown our top 5 largest accounts by an average of 90% over the last two years.
Customers in cluster 2, the “Sweet Spot” represented the best of both worlds. Although their value was not as high as the “Rare Birds” they were more plentiful. They also had higher price points, high percent of follow on work and YOY retention than the “One & Dones.” Retention rates although not as high as the “Rare Birds” was good (a little over 33%). Bottom line – they represent the model that we need to build our coverage and services bundle against. We have also realigned our resources to help account development/retention activities against this group.
Why do low price point and short engagement acquisitions perform so poorly?
We discovered five main reasons for this:
- Length of the engagement – too short to learn business/issues/meet folks/create a relationship, etc.
- They get the “B” team – the “A” team is on existing accounts, as a professional services firm that measure FTE productivity this will always be the case.
- Short term need vs long term problem – we were successful in building a relationship with target buyers within targeted accounts. So much so that they decided to “give us a try.” The problem with that is that it was usually a piece of work that wasn’t strategic.
- Size matters – our win rate and retention rate dropped dramatically on companies that had under $1B in revenues. The only exceptions were situations we were able to sell a solution as the first engagement.
- Culture/Attitude – some companies just don’t have a culture of working with outsiders. This very difficult to know until you’re in the door.
So as you are thinking about 2009 focus on aligning resources and efforts on;
- Retaining and expanding your biggest customers with new lines of business.
- Find your “sweetspot” based on this type of analysis…what is the right mix of services and price.
- Targeting big companies with big needs…there are many out there now just make sure you have the right offer.
Because at the end of the first engagement…a foot in the door just isn’t enough.
by scott.gillum | Jul 15, 2012 | 2008, Observations
Pick up any book on Customer Service and the first tip on how to improve or provide a good customer service experience is to “listen to the customer.” This advice is so incredibly obvious and intuitive that you shouldn’t need a book to tell you. Yet putting it into practice is incredibly hard to deliver. Why?
Recently, a transportation company set out to answer that question. Our task was to discovery the key to delivering a “good customer service experience.” We surveyed over 500 customers, conducted multiple focus groups and held one-on-one interviews. And after all that data collection, what did the customers say they wanted?
They wanted the company…are you ready for this…”to know them.” Know them personally and their business. Defined by having an understanding of their business so that you can anticipate their needs, and as a result, be a valuable partner. Doesn’t sound too difficult to deliver, right?
In this case, it was. The company had no customer service standards, and no rules to govern customer interactions. They also lacked a centralized customer database to capture and archive customer conversation and data. To make matters worse they delivered customer service in a decentralize environment with over 100 centers, all operating independently.
Given that scenario you would think that this company could implement some simple fixes that would have a big impact—some simple fixes. But first you must understand how the company got into this situation in the first place.
At its core, this is an operations driven company, and customers can sometimes get in the way of efficiency. Their culture and core operating model was to move a box as quickly as possible from point A to B without damaging it.
Customers who have special needs and/or require assistance slow down the process. In this environment, delivering good customer service can be too costly and/or too inconvenient. The insight was that the (logistics) process was found to be more important than the customer. Internal systems (or lack of), compensations, key performance indicators were all designed to move freight, not to measure customer satisfaction.
The feeling was that if a package made it to it’s final destination on time, and in reasonable shape, customers would be happy, and for the most part they were. It’s when that process broke down that customers wanted more. They wanted the customer service rep to know them, their company, their issue and have a solution.
And with that, the company had its answer. The challenge that remained was to change the corporate culture. Unfortunately, that turned out to not be as easy as going from point A to B.
Here’s how I know. Looking back at the new accounts acquired over the last four years we found some interesting trends and confirmed some things that we knew intuitively (click on the image). When we measured the value of customers in their first year against the average time spent engaged with the client a few key insights emerged.
